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Tuesday, June 7, 2016

M'sia credit rating may downgrade due to swelling public debt

UK-based Oxford Economics has warned that Malaysia may see a credit rating downgrade due to its mounting debt including from 1MDB, according to Nikkei Asian Review.

The report noted that Malaysia's public debt had swelled to 54.5 percent of gross domestic product (GDP) in 2015, up from 40 percent in 2008, and half a percentage point shy of the 55 percent debt ceiling.
This was in contrast to Indonesia and Thailand where public debts are only 29 percent and 31 percent of GDP respectively.

"The government has in excess of 15 percent of GDP of debt not currently on the balance sheet in the form of contingent liabilities due to commitments to state-owned companies, including 1MDB.

"Higher public debt and the prospect of fiscal slippage could be just the catalyst for one or more credit agencies to respond by downgrading Malaysia's credit rating," Nikkei Asian Review quoted a report by Oxford Economics.

The report was written by Oxford Economics's Asia economist in Singapore, Sian Fenner.

Oxford Economics estimated that Putrajaya's guarantees for 1MDB's debt could add US$7.5 billion to its balance sheet, or 2.5 percent of GDP.

Malaysia presently has an "A-" rating by Fitch Ratings and S&P Global Ratings and an "A3" rating by Moody's Investor Services.

The report warned that a downgrade could trigger a sell-off in the equity and bond market and add pressure to the ringgit.

It noted that Malaysian institutional funds have ample liquidity and such knee-jerk reactions will not be in the short-term.

However, the Asian Nikkei Review noted that the ringgit and Malaysian stock market is already under pressure even without a downgrade.

"Foreign selling from Bursa Malaysia continued for the sixth consecutive week through June 3, noted MIDF Research.

"Foreign net inflows have been reduced by half to RM1.28 billion so far this year," it said.